Thursday, December 8, 2016

October JOLTS and Labor Market Conditions Index positive but meh

The JOLTS Survey and the Labor Market Conditions Index are two metrics with great promise, but like those surveys, but suffer by not having a long enough real-time history to use with full confidence.

In the case of the JOLTS survey, there is now a clear divergeance between the pattern during this expansion and the only full sample of the prior expansion.

Here's job openings (blue), hires (red), and quits (green, right scale) since the first bottom in 2003:

In the one and only complete cycle since the series began, hires and quits peaked first, while openings continued to increase until shortly before the onset of the 2008 recession. During this cycle, hires have gone sideways for over a year, while openings continued to rise until recently, and now appear to be rolling over. Meanwhile quits, while down this month, are still at a new high on a 3-month rolling average.

So, In the last cycle, YoY job openings held up until nearly the end. This time around, it appears at least for now that openings may be turning before quits. Unless job openings make new highs in the months ahead, this cycle will not match the last one. We just don't have enough history with the JOLTS series to know which resolution is more likely.

In the past, employment growth (which is the net of hiring over firing) decelerates markedly before layoffs begin to increase. JOLTS now breaks that down into hiring and discharges, shown below:

Hiring looks like it shows late cycle deceleration, but this has not translated into any increase in layoffs and discharges. Here's a close-up of the last year from the graph above

Turning to the Labor Market Conditions Index, the problem is backfitting, since the underlying data goes back half a century, but the index itself was only created a few years ago. We need to see how it performs in real time.

Earlier this year there were some poor, negative readings leading some Doomers to holler "recession!" but these have largely been revised away:

As you can see, the most recent reading (for October) was also positive.

The recent upturn in housing should translate into increase spending, and thus increased employment, in the next 6-12 months, so I expect further positive readings here over the near term.

Bottom line: for the economic expansion, there is no sign in these two metrics that Indian Summer will give way to the Gales of November anytime soon.